August
28, 2003

Would
affirm Village’s right to tax ‘S’ corporations—
Tax
issue to appear on fall ballot

Village Council agreed
last week to place on the November ballot an issue that would allow the
Village to continue to collect taxes on the profits of businesses classified
as S corporations.

If approved, the
ballot issue would not give the Village more taxing power or increase
taxes on corporations. Instead, the issue would allow the Village to maintain
its authority to tax S corporations, which, according to John Chambers,
the Village solicitor, are often owned and operated by a small group of
shareholders.

According to MyCorporation.com,
an Internet document filing service, an S corporation is a business which
passes its income through its shareholders, who report the company’s
income or loss on their individual tax returns.

At its meeting Aug.
18, Council unanimously approved an emergency ordinance placing the issue
on the Nov. 4 ballot. The ordinance was considered an emergency because
it was approved in one reading, instead of two, which is the typical number
of readings.

Council elected to
place the issue on the ballot because of a decision by the Ohio General
Assembly that created a one-time window allowing Ohio municipalities to
adopt this November a ballot issue reaffirming a local government’s
right to collect taxes of out-of-state S corporations.

The election here
will cover all S corporations. Since the Village believes the state legislature
will try to eliminate the collection of taxes of all S corporations, the
ballot issue will “reaffirm” Council’s intent to continue
to collect such taxes, Council president Tony Arnett said.

Under the state law,
an out-of-state S corporation would not have to pay local taxes if the
corporation distributes its shareholder earnings as dividends, instead
of wages, Chambers said in a memo to Village Manager Rob Hillard.

Last week, Council
members said that corporations should have to pay taxes, just like Yellow
Springs residents have to. Arnett also expressed frustration with the
state legislature. “It’s rather annoying that they would seek
to remove the taxing authority that the Village already has in place,”
he said.

It’s unclear
how much the Village would be affected if it could not collect taxes from
out-of-state S corporations. Chambers said that the Village would likely
lose a very small amount of revenue if it did not collect taxes on S corporations.